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Drug Markets and Organized Crime

Oxford Handbooks Online


Drug Markets and Organized Crime
Peter Reuter
The Oxford Handbook of Organized Crime
Edited by Letizia Paoli
Print Publication Date: Oct 2014
Online Publication Date: Dec
2013

Subject: Criminology and Criminal Justice, Organized Crime


DOI: 10.1093/oxfordhb/9780199730445.013.004

Abstract and Keywords


This essay examines the variation in relationships between drug market enterprises and organized crime across different
levels of the market, countries, and drugs (cocaine, heroin, marijuana, and methamphetamine). For example, marijuana
markets in Europe are generally characterized by small organizations with little connection to any but the broadest concept
of organized crime. On the other hand, trafficking of heroin in Tajikistan is dominated by highly structured organized crime
groups with strong connections to the political system. It may well be that, without central and effective corrupt government
involvement, drug markets are likely to be fragmented and competitive. Organized crime dominance probably reflects more
generally the failure of government rather than drug market specific factors.
Keywords: Cocaine, heroin, methamphetamine, marijuana, corruption, smuggling, career length, organized crime

I. Introduction
The markets for illegal drugs, mostly cocaine, heroin, and cannabis, probably generate, globally, more revenues than any
other illegal market.2 That same statement holds for many individual Western countries and for a small number of producer
and transshipment countries. Since drug markets are so large, with some highly structured enterprises in them, it is tempting
to assume that drug distribution is a major activity of organized crime, defined as broad-based and durable criminal
organizations. In fact, the nature of the enterprises in drug markets varies greatly across countries, drugs, and levels of
distribution in terms of their size, durability, and relationship to other criminal activities. Thus, considerable variability exists
in the relationship of these criminal enterprises to organized crime. However, this depends on definition. If, as is increasingly
common in Europe, organized crime is viewed as a set of profit-making criminal activities, regardless of the solidity of the
organizations involved in them, drug trafficking, at least at the wholesale level, is an almost prototypical organized crime
activity (e.g., SOCA, Europol, 2013). More sophisticated definitions of organized crime (e.g., Maltz 1976) exclude many small
dealing organizations.
The focus of this essay will be on the upper end of the drug trade rather than on retailing, even though the latter generates
most of the revenues, as discussed below. That is because the fortunes are made at those higher levels: refining and
exporting in the producer countries, transshipment in the transit countries, and importing and high-level wholesaling in the
consuming countries. There are no Walmarts or Starbucks in the cocaine, heroin, or cannabis markets. Retailing even the
very expensive cocaine generates extremely low incomes3 and is undertaken by generally small and ephemeral
enterprises.
(p. 360) This essay will deal only with cannabis, cocaine, heroin, and methamphetamine, the last probably the synthetic
drug generating the greatest revenues. The essay will primarily focus on the characteristics of drug markets and enterprises
in them. Only at the end will the relationship to other criminal activities and to organized crime be considered. Section 1
reviews the basic features of these markets, such as the role of international trade and the low costs of production. It shows
differences across drugs. For example, whereas heroin involves a lengthy international distribution chain and commercial
distribution, cannabis is increasingly dominated by short chains and domestic production. The shares of total revenues
going to producers and high-level distributors are different for the two drugs. Section 2 analyzes characteristics of trafficking
enterprises in three producer or transit countries: Colombia, Mexico, and Tajikistan. Again, the theme is the variability, this
time related to government actions. Section 3 turns to enterprise and market characteristics of high-level cocaine

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enterprises as the market has evolved over time in the United States and Europe.
Section 4 analyzes drug control efforts in Colombia, Mexico, and Tajikistan; it focuses on whether the intensity or nature of
enforcement can account for variations in how the market and enterprises are organized. Section 5 then turns to the
question of the relationship between drug production and distribution, on the one hand, and other crime and organized
crime, on the other hand. The final section summarizes.

A. Sources
Though the literature on drug markets is large and growing, it focuses primarily on the retail trade rather than on the upper
levels4 . This is hardly unexpected; retailing is where the bulk of participants are found, it accounts for much of the visible
violence and disorder associated with drugs, and it is much easier to study. The smaller numbers of upper-level actors
invest more in protecting themselves against surveillance, and they are, in any case, less visible outside producer
countries.
Desroches (2007), in a review of the literature on North America and western Europe, asserts that scarcely a dozen original
research papers have been published on high-level trafficking. Research is very unevenly distributed across nations. As is
often the case in empirical criminology, the United States accounts for a disproportionately large share of the total, reflecting
both the greater prominence of illegal drug markets in that country as well as the relatively generous funds available for
research. In western Europe, the analytic literature appears slight, though a number of descriptive studies have appeared
since 1990. In the United Kingdom, there are two recent studies of importance: Pearson and Hobbs (2001) used interviews
and investigative files to describe middle markets for drugs, while Matrix Knowledge Group (2007) used interviews with
imprisoned drug dealers to describe distribution from international smuggling through wholesale distribution. Paoli (2000)
collected data on drug distribution in Frankfurt and Milan, including the higher levels. Official reports provide some
descriptive material but little use has been made of it.
(p. 361) For many countries that are important in the trade, such as Iran and Tajikistan for heroin transshipment or Morocco
for cannabis exports to Europe, scarcely any research has been published.5 This may reflect both the political sensitivity of
the subject and the small size of the social science community in these countries.

II. Characteristics of Production and Distribution of Drugs

A. Production
The markets for different drugs vary in basic characteristics. Cocaine and heroin, the drugs generating the greatest harm to
society, both are produced in poor countries that export the vast majority of their output. A tiny number of nations account
for the vast bulk of production of coca and opium, of which heroin is a derivative. According to official estimates (e.g., US
Department of State 2011; United Nations Office on Drugs and Crime 2011), Myanmar and Afghanistan have accounted for
more than 80 percent of global production of opium since the mid-1980s. Since the turn of the 21st century, Afghanistan has
increasingly dominated, so that in 2007 it was estimated to account for 93 percent of the total (8,200 tons out of 8,870 tons).
A total of six countries account for 98 percent of world heroin production. Bolivia, Colombia, and Peru account for all coca
production. The distribution of production among them has changed over time. In the 1980s, when the illegal cocaine market
in the United States first emerged, it was produced primarily in Peru, Bolivia was second, and Colombia a distant third. Since
the mid-1990s, this has changed markedly, with Colombia responsible for about two-thirds of total production, probably
because of decreasing government control in rural areas of Colombia as well as more aggressive policies against coca
production in Bolivia and Peru. Though other nations in the Andes, particularly Ecuador, are always rumored to be about to
enter the coca-growing sector, none has so far done so (US Department of State 2011).
The two drugs are distributed through long chains across many countries. For heroin going from Afghanistan to Europe, ten
distinct organizations may be involved in transactions from farmer to final user; transactions between separate
organizations may occur in three countries between Afghanistan and the final consumer in Amsterdam.6 The growing of
poppy and coca plants takes place in poor developing countries because the law enforcement risks per unit of product are
so high in Europe and North America that, even with risky smuggling, it is cheaper to produce in distant countries where land
and labor are cheap and where the government imposes few costs through eradication or seizures (Paoli, Greenfield, and
Reuter 2009, pp. 201234).

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Click to view larger


Figure 18.1 Numbers of participants in the cocaine and heroin production and distribution chains.

This gives a distinctive hour-glass shape to the distribution of participants in the cocaine and heroin trades at various
stages, as indicated in Figure 18.1. For these drugs, (p. 362) literally millions of individuals are involved, at least part-time,
in the growing, harvesting, and early stage refinement of the drug, but perhaps only a few tens of thousands of individuals
are involved in the smuggling sector. Retailing again involves many hundreds of thousands. The markets at different points
will be influenced by that configuration.
The growing of the plants, whether of coca or poppy, is executed by small farmers acting independently. Evidence exists of
complex financing ties to local money lenders in Afghanistan, which sometimes creates pressures to grow when it would not
be in the farmers own best interest. More recently, claims have also been raised of political pressures from rebel groups to
grow more poppies (Mansfield 2011). In Colombia, gangs and guerrilla groups may also play a coercive role, though that is
surely limited by the high mobility of the farmers in many of the growing areas. In Myanmar, the United Wa State Army
(UWSA) has aggressively restricted production and even moved large numbers of farmers out of poppy-growing areas in
order to limit production; this is thought to be politically rather than economically motivated, since the UWSA has pledged to
eliminate opium production in the areas they control (Kramer 2007 and 2009).
Cannabis has quite a different structure. It is primarily produced domestically in the consuming countries. The United Nations
Office on Drugs and Crime (UNODC) states, that in 2009, a total of 134 nations reported domestic cultivation of cannabis on
their territory (United Nations Office on Drugs and Crime 2010). Though reports of large-scale production in Afghanistan
occasionally appear, only Mexico and Morocco are regularly reported as having substantial export volumes. Bouchard, in a
series of studies in the province of Quebec (population 7 million), has shown that it is likely (p. 363) that many tens of
thousands of individuals are involved in aspects of cannabis production (e.g., Bouchard 2007). Since Quebec does export
modest quantities to other parts of Canada and to the United States, it probably has a larger industry per capita than most
places.
Synthetics present more complexity; some are produced in rich consuming countries (e.g., Ecstasy in the United Kingdom
and the Netherlands in the 1990s) while others (e.g., amphetamine type stimulants, ATS) are produced in poor distant
nations, such as Myanmar, for sale in Japan, Korea, and even western Europe. Methamphetamine, the only synthetic
examined in detail in this essay, is produced both in Mexico for export to the United States and also in small domestic
laboratories in the United States itself. The precursor chemicals are often imported clandestinely from India (US Department
of Justice 2010).

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From even these brief descriptions of the production conditions for the different drugs, it is clear that general statements
about drug production markets are difficult to make. Coca and opium are agricultural crops with little evidence of
advantages to industrialization; the technology remains primitive. Synthetic manufacturing, where economies of scale may
be substantial, presents a very different set of opportunities for criminal entrepreneurs.

B. What Are the Revenues from Drug Selling and How Are They Distributed?
A staple of discussions on illegal drugs in recent years has centered on the claim of the UNODC that these markets generate
total revenues of $400500 billion globally and that the international trade is worth more than $100 billion (UNODC 2005),
making it the fourth-largest international trade flow, larger, for example, than that in wine and beer. These figures seem to be
substantial overstatements, and the 2011 World Drug Report now includes very large downward revisions of the cocaine
and heroin revenues (United Nations Office on Drugs and Crime 2011).7 Of equal interest for this essay is the distribution of
the earnings across levels of the trade.
Estimates of production of illicit crops are very uncertain. Every element of the calculation (cultivation area, yield per
hectare, efficiency of processing) presents its own challenge. The United Nations and the US Department of State publish
separate estimates each year; these often show disturbing differences in changes year to year. These figures cannot be
used to develop global revenue estimates.
The only method for producing a global estimate of drug market revenues is to sum estimates at the national level. This
reflects the fact that the prices of drugs vary a great deal across countries. In the United Kingdom, heroin retailed for the
equivalent of approximately $240,000 per kilogram in 2005; the comparable figure for the United States was approximately
$380,000. In a country like Tajikistan, the figure might have been less than one-tenth as much. Thus, it is impossible to
develop a global estimate as the product of global consumption by retail price.
(p. 364) Demand-side estimates start with counts of the numbers of people who consume drugs with various frequencies
or intensities of use (e.g., occasional and hard core, or daily, weekly, and past year) and multiply those counts by average
rates of consumption for each country. One might adjust that figure upward by some factor to account for underreporting in
surveys even of legal commodities (Cook 2007).
The consumption figures generated this way look strong only relative to the supply-side estimates and not in any absolute
sense. There are three main concerns:
General population surveys miss many heavy drug users who are in treatment, in jail or prison, or in an unstable
housing situation, and who are hard to locate or who are unwilling to talk about their substance use.
Respondents are not always accurate in their reports, either because of an intention to deceive or because they have
trouble recalling details.
Available evidence is limited about the amount of drugs consumed per use-day or session.
The first concern is not insurmountable as long as a good data source of information is available about hard-to-reach
populations that can complement the general population survey. ONDCP (2001) and Pudney et al. (2006) provide good
examples for how this can be done with information from arrestees and treatment populations. The second concern will
always be an issueone that requires analysts to use and justify credible adjustment factors (ONDCP 2014). Finally, insights
about amounts consumed can be obtained with information about expenditures and information about days of use and
amount used per day, but such data are rare. Paoli, Greenfield, and Reuter (2009, Appendix B) show how little research is
available on heroin consumption by addicted users. Despite the large number of surveys that inquire about marijuana
prevalence, information about the amount and quality of what is typically consumed is almost nonexistent. Even seemingly
minor assumptions about amount consumed (e.g., the amount of marijuana in a joint) can have major impacts on total
consumption estimates (Kilmer et al. 2010).
The distribution of revenues across levels of the trade for cocaine and heroin is indicated in Table 18.1, which shows the
price of a kilogram of cocaine or heroin as it moves through the system from production in Colombia (coca) or Afghanistan
(poppy) to final sale in Chicago (cocaine) or London (heroin). Production accounts for a very small share of total drug
revenues, perhaps as little as 1 percent; for example, the farm gate value of the coca required for a kilogram of cocaine
costs less than $1,000, whereas the retail price for a gram is about $100. A larger share of revenues (perhaps 10 percent)
is accounted for by smuggling out of producer countries and through transshipment countries, such as Iran, Mexico,
Pakistan, Tajikistan, and Turkey.8

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Table 18.1 Price and Purity of Cocaine and Heroin from Production to Retail, ca. 2005
Cocaine1 kilogram
Stage

Farm-gate

Raw
Price

Purity

Heroin1 kilogram

100%
Pure

Location

Raw
Price

Purity

100%
Pure

Location

$800

100%

$800

Colombia

$900

100%

$900

$2,200

91%

$2,400

Colombia

$3,400

73%

$4,700

Import/Wholesale
(Kg.)

$14,500

76%

$19,000

Los
Angeles

$10,000

58%

$17,000

Turkey

Mid-level
/Wholesale (Oz)

$19,500

73%

$27,000

Los
Angeles

$33,000

50%

$66,000

England
&
Wales

Typical retail
price-Country

$78,000

64%

$122,000

$105,000

44%

$239,000

Export

United
States

Afghanistan
Afgn.
neighbors

United
Kingdom

Source: Kilmer and Reuter (2009)

What these figures also show is that 70 to 80 percent of total revenues are generated by the last two or three transactions,
as the drug goes from ounce purchases by low-level wholesalers to a fraction of a gram at the retail level.9 No similar data
are available for cannabis or methamphetamine, but it is likely that, with shorter chains from production to distribution and
higher risks for the producers, a larger share goes to the cannabis grower and to the methamphetamine manufacturer.
(p. 365) Though most of the revenues go to low-level dealers, as noted above, the fortunes are made by those at the top
of the trade. For example, in 2009 Forbes magazine listed a major Mexican drug trafficker, Joaquin Guzman Loera, as a
billionaire (Forbes 2011); the basis for that judgment is questionable but, no doubt, he, like the Colombian drug traffickers of
the 1980s, was extremely rich.
The high share of the retail price accounted for by low-level distributors is easily explained in the standard risk
compensation model used by economists. Assume that a higher level trafficker sells 1 kilogram of cocaine and has a 1
percent probability of being imprisoned for one year as a result of the transaction; the rich trafficker values a year in prison
at 100,000 euros. Assume a retailer sells 1 gram of cocaine and has only a 1 in 1,000 chance of the same imprisonment; he
values a year in prison at 25,000 euros. Assuming away any risk aversion, the trafficker will charge 1 euro per gram to
cover the risk, while the retailer, even though he has a lower chance of being jailed and values that less highly, needs 25
euros to cover the risk associated with 1 gram. The model is highly simplified and the figures are intended to be only
illustrative but the proportions are probably reasonable. The result is that, though each gram is marked up heavily at the
retail level, the volumes are so low per retailer that on average each dealer has modest earnings.

III. Trafficking in Producer and Transshipment Countries


Trafficking involves distinct organizations and, again, variation is found across drugs and nations, reflecting, in part,
government strategies. This is illustrated by (p. 366) consideration of the smuggling market in three important countries:
Mexico, Colombia, and Tajikistan.
Mexicos drug market has attracted a great deal of attention since 2006 because of the extraordinary levels of violence; an
estimated 11,000 drug-related homicides occurred in 2010, roughly ten times as many as in 2000 (Rios and Shirk 2011).
Mexico is the source of all the major imported drugs in the United States; it is the principal foreign producer of three of them
(cannabis, heroin, and methamphetamine) and the transit country for most of the cocaine. Approximately seven cartels
were said to be operating in 2010, locked in bitter competition for specific routes (Astorga and Shirk 2010). Some of these
organizations have themselves emerged from competitive killings. For example, the Beltran Leyva organization split from the
Sinaloa DTO through such homicides.

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This configuration of a small number of large drug trafficking organizations (DTOs) is thought to have been a characteristic
of Mexicos drug markets for some decades (Astorga and Shirk 2010). What has changed is the relationship among the
groups. Whereas before 2000 the long-time ruling party, the PRI, ensured generally cooperative terms among DTOs, the
election of a PAN president (Vicente Fox) led to a breakdown of agreements.10 Homicides doubled between 2000 and 2006,
the end of the Fox administration. The next president, Felipe Caldern, aggressively attacked the DTOs in late 2006. A
dramatic escalation in the violence ensued, now including many officials and innocent parties among the victims.
Colombia has served as the principal refiner and exporter of cocaine to the United States for 30 years, and the nation has
seen a very different evolution of drug enterprises. In the 1980s, the Cali and Medelln cartels emerged as major nonstate
actors with political ambitions: these groups seem to have been only loose syndicates of independent entrepreneurs who
regularly collaborated but also had to compete with other, smaller Colombian smuggling enterprises (Clawson and Lee
1998). The Medelln cartel attacked the central government, seeking an agreement that it should be left alone and its leaders
admitted into respectable society. Its assassination of Luis Carlos Galn, the leading presidential candidate in 1989,
generated a military led crack-down against, first, the Medelln traffickers and, then, almost reflexively, against the more
strategic Cali group.
After most of the leading traffickers were locked up or killed, the industry continued to operate at the same levels of
throughput but in a different configuration. Since 1995, numerous smaller refining and smuggling groups have occasionally
collaborated in individual shipments but no longer have political ambitions. The development of a new technology for
smuggling large quantities efficiently, namely semi-submersibles,11 has probably led to increased collaboration among them.
Relations with the paramilitary and left-wing guerrilla groups have varied between cooperation and conflict. For example, the
most prominent trafficking gang in 2011, Los Rastrojos, fought the Revolutionary Armed Forces of Colombia (FARC) in some
areas but allied with the FARC in others (Reuter 2011)
Tajikistan, a much less well researched transshipment nation, is of interest because it presents more clearly the example of
a narco-state. Paoli, Greenfield, and Reuter (2009) (p. 367) estimate that heroin trafficking (from Afghanistan to Russia)
adds at least one-third to recorded GDP. They describe in detail the variety of organizations, large and small, that operate in
the market. In the following excerpt from their analysis, I focus on the characteristics of the larger organizations that
probably account for the bulk of the quantity trafficked, at least since the 1990s.
These large organized criminal groups are usually known as criminal communities, a term inherited by most CIS countries
from the Soviet penal code (see for example, Butler 1997). The most successful ones are able to deal with more than 1 ton
of heroin a month; at Russian import prices, that yielded between $12 and $24 million per month in 2005.12
Stable and usually high-level government protection has been critical to the success of these large trafficking groups. The
progress in border control and law enforcement that Tajikistan has achieved since the late 1990sthanks to the support of
international agencies and foreign donorshas facilitated the large groups domination. By 2001, for example, a total of 12
to 13 police and custom posts could be found on the route from Khorog to Osh, a distance of only 700 to 800 kilometers. The
roads from the Afghanistan border to Dushanbe are checked even more strictly. Rather than create insuperable barriers to
drug transportation, this has generated large payments to border and police officials. Small-time individual smugglers are
disadvantaged; apparently, there are economies of scale in corruption (Reuter 2003). This has led to some coalition of
corrupted bureaucracy and drug trafficking organizations. Whereas small- to medium-sized trafficking groups rarely enjoy
high-level protection, systematic collusion is the characteristic of these large enterprises.
This variation was candidly described by the Drug Control Agency of Tajikistan (DCA) (2000, pp. 1718) in a report on the
illegal drug market in Dushanbe: The leaders of all groups have their own relations or other connections with some
governmental structures or law enforcement agencies. In many cases the[se] are paid regularly definite sum[s] of money. In
some large groups a leader is either a commander of military troops or law enforcement agency. In the largest groups
leader[s] have high position[s] in some governmental structure[s].
Some of these criminal communities specialize in one or two phases of the heroin business and, as in the case of smaller
groups, their specialization is a function of their location. However, a few large and particularly well-connected
organizations involve up to a few hundred individuals, including core members and service providers, and they operate
across a broad spectrum of trafficking activities, from the importation of opiates from Afghanistan up to the wholesale and,
occasionally, even retail distribution of opiates in Russia and other former Soviet states.
Most of the large trafficking organizations coincide with the private armies of former civil war commanders turned career or
elected public officials. As the DCA states, there are several large organizations in Tajikistan dealing with deliver[y] of
drugs. As a matter of fact they all are subject to commanders of military formations, which were formed during Tajik Civil
Warsome of these formations became parts of armed forces of the country; some are still under the subordination to their
commanders and (p. 368) are illegal in their essence (Drug Control Agency of Tajikistan 2000, p. 70; see also pp. 18 and

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2122).
The three country vignettes suggest considerable variation in the nature of smuggling enterprises and markets across
different transshipment and producer countries. Surely this reflects the influence, inter alia, of the governments role. In
Tajikistan, the distinction between heroin smuggling and the government may be minimal since such smuggling is
substantially the most important source of earnings for corrupt officials and the political leadership. There may indeed be
coordination and power to exclude others, at least other large enterprises. Heroin smuggling may provide the core criminal
enterprise for gangs that are involved in other Tajikistan criminal activities. In contrast, Mexico and Colombia, despite the
deep and persistent corruption of their governments, have been able to act at times very aggressively against the major
drug enterprises. Since the 1990s, Colombias market has involved high levels of cooperation among the principal traffickers
without government assistance but no market power; the cooperation appears to be operational rather than strategic. When
the Mexican government withdrew its at least tacit collusion, the drug traffickers there were unable to maintain their marketsharing agreements, and they have fought in a way that suggests that they believe domination is possible.

IV. High-Level Trafficking in Consumer Countries


As suggested above, the structure and characteristics of drug markets in producer and transshipment countries may be
very responsive to governmental actions and inactions (Paoli, Greenfield, and Reuter 2009, pp. 201234). In the rich
consumer countries,13 corruption seems to be less central to the business, an assertion that arouses considerable
skepticism in producer countries. Corruption, like scientific hypotheses, presents a problem of epistemological asymmetry.
Scientific hypotheses can only be disproved, not proven; corruption can be found but its existence never disproved.
Nonetheless, US prosecutors pursue corrupt agents with considerable zeal when they find them; at the same time, the
overlapping authority of enforcement agencies creates a situation in which any corrupt agent, no matter how well protected
in her own department, has to be concerned with possible investigation by another agency. The market for corruption will
shrink in such an environment.
Corruption is frequent but mostly not systemic in the United States, United Kingdom, and most western European nations.14 It
very rarely involves leading political figures. A different set of factors affects the nature of enterprises involved in high-level
trafficking and the structure of the markets. The remainder of this section describes different types of organizations that
have functioned in the cocaine market as it has evolved in (p. 369) the United States over the last 35 years and, more
briefly, what is known about high-level European cocaine and heroin markets.

A. The Early US Cocaine Market


Adler (1985) reported observations on 65 high-level dealers and smugglers in Southern California, whom she and her
husband met through contacts while in graduate school. Adler noted considerable range in the closeness and stability of
relationships among participants. Some formed close and enduring partnerships that were quite exclusive; for example, one
pilot was constantly being recruited by a smuggler neighbor but refused to work for him because of his loyalty to his regular
smuggler employer (p. 66). Other dealers, characterized as less reputable, existed in a network of shifting alliances.
The organizations Adler studied were micro-enterprises. Those of cocaine dealers typically consisted of only two or three
people. Marijuana, because it is bulkier, required more elaborate transportation organizations. She concluded that this is
not an arena dominated by a criminal syndicate but an illicit market populated by individuals and small groups of wheelerdealers who operate competitively and entrepreneurially (p. 2).
Reuter and Haaga (1989) interviewed mid- to high-level US traffickers in cocaine and marijuana in the mid-1980s; the
sample was recruited from low security federal prisons. They found importers who were small, opportunistic, and nicheoriented. They noted: All one needs is a good connection and a set of reliable customers (p. 39). Though many of those
interviewed regarded themselves as part of an organization, [m]ost of the arrangements would be better described as small
partnerships, in which each partner is also involved in trading on his own account, or as long-term, but not exclusive,
supplier-customer relationships (p. 40).
Both Adler and Reuter and Haaga were describing the cocaine market in an early stage of its development. In 1978, cocaine
consumption was estimated to be approximately 100 tons; by 1988, it had grown to approximately 300 tons (Everingham
and Rydell 1994). Prices had plunged, the consequence of the emergence of more efficient distribution systems. It seems
plausible that the generally amateur, small-scale smuggling operations described in the two studies, often involving welleducated principals with at least modestly successful legitimate careers, had been replaced by more professional and largescale smuggling operations (see, e.g., Decker and Chapman 2008).

B. Colombian Smuggling Organizations in the United States

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Fuentes (1998) has provided the most fine-grained description of the operation of the high levels of the international drug
trade since the shift to large-scale smuggling; hence, we provide more detail than for other studies. He relied on transcripts
from court proceedings (including extensive wiretaps) on two major organizations and lengthy (p. 370) interviews with five
senior traffickers who have cooperated with federal agencies. These are accounts of organizations that were detected and
punished. Thus, they might be atypically weak. In fact, both organizations had lasted for at least five years, while the
informants had also been successful over an even longer period.
Each trafficking organization accounted for a nontrivial share of the total cocaine market in the United States. On a monthly
basis, a dozen or so customers brought in loads of hundreds of kilograms; a 250-kilogram purchase at $20,000 per kilo
involves a payment of $5 million. A number of multi-ton shipments arrived from Colombia; during the period August 1991 and
April 1992, five shipments totaling 20 tons were warehoused by one warehouse operation.15 In the context of a market
delivering about 300 tons to final users, these are substantial quantities.
Fuentes described organizations that were durable, bureaucratic, violent, and strategic. For example, recruitment of new
staff for US operations was highly systematized, with interviews by senior traffickers in Colombia and provision of collateral
in the form of identification of family members who could be held hostage. It was noted: References for prospective workers
had to come from within the organization. Non-Colombians were considered higher-risk employees because it was more
difficult to threaten them if they defected with money or drugs; providing familial details did help, though threats were harder
to execute in the Dominican Republic than in Colombia. Recruitment was very selective. A strong preference was shown for
relatives in leadership positions and cell managers were usually well educated, possessing college degrees.
Exit was allowed, provided the circumstances did not arouse suspicion that the agent had defected to the police.
Colombians who were recruited by the organization in Colombia to work in the United States were issued visas that expired
shortly after entry so as to limit their mobility.
The system was designed to move shipments very rapidly since inventory in the United States represented risk. Twenty-four
hours was the goal for getting rid of a shipment once it had reached the destination city. Stockpiles were held in Colombia,
where the enforcement risk was vastly smaller. The organizations had their own domestic transportation systems, drivers
who would carry shipments of 100 kilos or more for prices ranging from $300 to $1,000 per kilo depending on the length of
the trip.16
The scale of the organization was impressive. One large cell was estimated to have 300 workers in it, occupying at least six
identifiable roles; it was estimated to have employed a total of 1,200 individuals during its lifetime. Most received modest
salaries: $7,000 per month for cell manager, $2,000 for stash house sitter. Given the volume and margins for the
organization, it still generated annual incomes totaling millions of dollars for the principals.17
Natarajan (2000) describes a similarly large organization in the New York metropolitan area. She documents one surprising
phenomenon, namely that the principal US operative talked to numerous individuals; a total of 24 were identified from
wiretaps, including 15 customers. This is hardly consistent with maintaining low exposure since any one of the 15 can obtain
relief from lengthy prison sentences by providing information about his supplier. Perhaps what we observe here is the
endgame of successful (p. 371) operations that become increasingly confident of their own invulnerability, which helps
lead to their demise.

C. European Trafficking
Though very large seizures of cocaine and heroin continue, suggesting the existence of large traffickers, smaller trafficking
entities still survive in the European market. Ruggiero and South (1995) describe opportunistic smugglers of less than a kilo
of cocaine or hashish, concealing it in bicycles. Disposal of smaller quantities requires less organizational capacity; a single
domestic customer may be sufficient.
It is impossible to systematically estimate what share of total European heroin imports are accounted for by large shipments,
i.e., groups with the financial, organizational, and personnel capacities to assemble, purchase, ship, and distribute large
quantities. Large shipments appear to account for the majority of all heroin seized, but that could reflect the higher per kilo
risk associated with larger bundles.
Given that the UK cocaine market has emerged much more recently, probably around 2000, as a mass market, it is perhaps
useful in this respect to also consider the study by Pearson and Hobbs (2001) of the middle market for cocaine in the
United Kingdom as paralleling the work of Adler and of Reuter and Haaga. Pearson and Hobbs also find no evidence of large
and hierarchical organizations in the cocaine trade; rather, they find evidence of networks of traders.
The most recent study is by Matrix Knowledge Group (2007), which used interviews with 222 individuals imprisoned in the
United Kingdom for serious drug offenses around 2005. Since it involved dealers in at least four separate drugs and at

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different stages of the distribution system, from importing to retailing, the study lacks depth on any specific drug or market
level. The vast majority of participants were either solo operators or they worked in small- to medium-sized enterprises. Price
fixing, indicative of restricted competition, was rarely reported. Collusion, in relation to dividing up geographical areas or
customers, was more common.

V. Enforcement
Illegal markets are shaped by enforcement in many respects. For example, intensive enforcement (characterized by high
probability of arrest and/or long sentences conditional on conviction) provides incentives for enterprises to remain small
since senior offenders will want to reduce the number of others who are potential informants against them. The many layers
of the heroin and cocaine trades, from importation through retailing, represent one consequence of this configuration since
it means traffickers handling large quantities of the drug will have to deal with only a small number of others; they sacrifice
revenue to achieve lower risk of exposure. Cannabis dealers, facing less (p. 372) severe penalties, are apparently willing
to work in larger groups; for example, Morselli (2001) describes a major international cannabis trafficker who at one stage of
his career was working with 20 contacts.
Official estimates suggest that drug smuggling is a risky business, at least in terms of the drugs themselves. For cocaine
globally, seizures18 may be as high as 40 percent of the total (UNODC 2011). For heroin, seizure rates are lower but still
substantial at 20 percent in 2010 (UNODC 2011). There is, however, no estimate of the probability of arrest specifically for
high-level dealers. Sevigny and Caulkins (2004) show that most of those incarcerated in the United States are participants in
distribution, but they cannot distinguish retailers from high-level traffickers.
Many seizures occur at the border and involve no offender other than the carrier, notwithstanding efforts in some countries
to make controlled deliveries in which police follow the drugs to their final destination. Offenders carrying small amounts
from one point to another across the border are called mules. The term refers not merely to their physical roles; they also
have minimal knowledge about who else is in the organization. When drugs are seized in container vessels, it can be very
difficult to identify the responsible participants. Thus, though a high fraction of the quantity shipped is seized, risks to senior
traffickers may be modest.
Studies of individual dealers or organizations give only a few hints about career lengths. Consider, for example, research by
Fuentes (Fuentes 1998), which is particularly rich in detail. The two trafficking organizations had operated successfully
within the United States for some years; one from 1983 to 1992 and the other from 1988 to 1992 at least. The head of the
first organization had been convicted in 1975 and then again in 1979, but, after release in 1983, he survived for nine years
without arrest. For only one other participant was a career length given; Harold Ackerman, a senior manager also involved
in money laundering, was said to have operated in the United States for almost 10 years (p. 19). However, the description of
the cells and the organizations generally suggested that they had operated in more or less the same form for at least a few
years.
As in other illegal markets, interaction between enforcement agencies and drug traffickers and dealers is constant, most
conspicuously around routes and modes of trafficking. A concentration of interdiction resources around South Florida in the
early 1980s led to a shift in trafficking routes from the Caribbean to Mexico (Andreas 2000). In 2003, tough enforcement
against cocaine smuggling from the Netherlands Antilles to the Amsterdam airport may have led to a shift to smuggling
through West Africa to western Europe. Increased focus on smuggling in TIR trucks (Trans International Routier) in Europe
may have led to more use of sea cargo for concealment.
Broader technological and social changes impinge on enforcement efforts. Ruggiero and South (1995) note that the growth
of international personal mail has reduced the risk of sending small packages containing drugs through the regular
international post; it is no longer a remarkable event for a household to receive a package from overseas. The universal
availability of cell phones makes electronic surveillance more complicated, though not necessarily less successful once
established. The same can be said for computers; they allow organizations to better control their own activities, but, once
(p. 373) controlled and deciphered by enforcement agencies, they provide more varied and detailed information for
investigation and prosecution.
Anti-money laundering controls are another component of drug enforcement specifically targeted at trafficking. While no
systematic measures are available as to how much money is laundered by drug traffickers, there are two reasons to believe
that control may have had a substantial effect at least on how drug traffickers conduct business. First, the absolute sums
seized in a number of high-profile money laundering operations, occasionally more than $250 million (Drug Enforcement
Administration 2007), constitute a nontrivial fraction of reasonable estimates of the total earnings generated by this level of
trafficking. Second, there are reports that money launderers charge 5 to 10 percent for their services, a healthy tax on the
revenues of high-level traffickers; given that there are many potential launderers, this may well represent a response to

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enforcement risk. However, an analysis by Levi and Reuter (2006) suggests that money laundering costs are such a small
share of total costs of distributing drugs that even effective enforcement will not raise the retail price of drugs enough to
reduce total consumption.

VI. Organized Crime and Drug Trafficking


The expansion of the drug trade in the last 40 years has presented opportunities for preexisting criminal groups to build on
their core capacities in other activities, particularly those involving illicit markets (gambling, prostitution, loansharking). One
might also expect, symmetrically, that success in the drug business would lead new organizations to use their core
capacities to enter other illegal markets and criminal activities. A shift in specialization by experienced offenders has taken
place; for example, in Britain many drug traffickers were previously active in other criminal pursuits, including armed
robbery (Dorn, Murji, and South 1992). Generally however that seems not to have happened at the organizational level.
Most drug trafficking organizations remain specialized.
Particularly surprising was the minimal role of the Mafia in the United States when the cocaine market emerged in the late
1970s and early 1980s, at a time when the Mafia was still a moderately important criminal presence. Though apparently
possessing some of the most important assets for this business and having had a major role in heroin smuggling during the
period from 1935 to 1970, the Mafia was marginalized in cocaine trafficking. Cases involving senior Mafiosi were almost
unheard of and the organizations themselves have not participated at all. This contrasts with the situation in Italy, where the
Mafia, a very different organization from its US counterpart, played a significant role in heroin trafficking at least until quite
recently (see, for example, Cantanzaro 1988 and Paoli 2003).
The American Mafia, as a national alliance of predominantly Italian gangs based in various cities, emerged primarily through
bootlegging, though the exigencies of the (p. 374) gambling business also played a role in its development (Haller 1979). It
was characterized by highly developed networks of systemic corruption in local law enforcement and, until about 1950 or
1960, in city politics as well. Both bootlegging and numbers banking required large numbers of agents, geographically
dispersed. Using its connections with the Italian Mafia, the US Mafia imported heroin through New York City docks, utilizing
control of the waterfront unions. The leaders were highly visible, as much reported on in the newspapers as prominent
socialites. The names of the principal families were also well known throughout the nation; membership in one of these
families provided an important asset for an ambitious young criminal seeking to intimidate others without investing in
extensive violence himself. The individual organizations endured in recognizable form for more than half a century at least.
Leaders were occasionally incarcerated but rarely for extended periods prior to the 1980s.
The assets of the Mafia families, then, included a reputation for control of contingent violence, both collective and individual;
networks of agents; durability; access to capital; and control of corrupt police departments. It turned out that cocaine
importing did not require these assets. Most essentially, the drug originated in Latin America, where other gangs had already
established corruption relations with authorities. Moreover, the large Hispanic immigrant community in the United States was
capable of providing the necessary networks and recruitment for operation. The Colombian organizations developed a
reputation for violence that was comparable to, if not greater than, that of the Mafia; for this purpose, they built on the
extreme violence that has characterized Colombia since the political troubles of the late 1940s (Palacios 2006). These
organizations were willing to be less discriminating in their use of that violence, killing wives and children as well as
principals.
Perhaps most importantly, high-level participants in the United States were at great risk from enforcement agencies. Many
agencies developed sophisticated and broad investigative capabilities, creating high probabilities of arrest. If arrested,
leaders were likely to serve very long sentences; the Mafia itself has largely broken down in the face of long sentences for
other crimes, which have generated high-level informants. The return here was not to broad reputation but to discretion.
Ostentatious display of wealth and power might be an asset in Colombia, where the corruption was systemic; it was a source
of weakness in the United States, where police corruption was, by the 1980s, only opportunistic and where enforcement
agencies had strong incentives and tools for apprehending leaders.
The Mafia, then, simply lacked useful assets for competing with Colombian and Mexican traffickers. But that may also explain
why these drug trafficking groups have not expanded their activities to other criminal markets in the United States. Their
assets are not usable in many sectors. Discretion requires that they restrict the dissemination of information about their
capacities. Similarly, their workforce is predominantly from their own community, limiting their capacity to operate in the
general marketplace. The contacts with corrupt authorities are limited to source countries, which play a minimal role in other
smuggling, apart from illegal immigrants; in that market, protection in the importing country alone has value.
(p. 375) Mexican drug trafficking organizations may represent one instance of diversification into a variety of criminal
activities. That certainly is a routine statement by scholars such as Luis Astorga and David Shirk (Astorga and Shirk 2010, p.

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19), as well as by law enforcement authorities in Mexico. The other activities listed usually include human smuggling to the
United States, extortion of businesses, and kidnapping. The first of these activities potentially uses organizational skills they
already possess since drug smuggling is their core business. Extortion and kidnapping make efficient use of their
reputational asset. Since the DTOs have well-known names, regularly reported in the Mexican media, a claim to the owner of
a store that the threat is backed by a specific DTO will have high credibility.
This value of reputation is a contrast to the situation of Colombian and Mexican drug trafficking organizational behavior in
the United States. The Colombian organizations have been in great flux over the last 20 years. Last years Norte de Valle
organization may morph into this years Rastrojos organization. Reputations are much less well established so that it is not
an important organizational asset. On the other hand, the Mexican drug trafficking organizations have committed few violent
acts in the United States; their reputations are thus not established.

VII. Concluding Comments


Though for a long time it was assumed that illegal drug markets were typically monopolized, in fact, monopoly control is rare.
Prior to 1980, it was widely believed that the American Mafia had dominated the major illegal markets such as those for
bookmaking and loansharking and even for heroin importation into New York City until the late 1960s (e.g., Cressey 1969).
Despite finding that some dealers within the United States have enormous incomes and traffic in large quantities, no
researcher has found evidence, except on the most local basis (e.g., a few blocks), that a dealer organization has the ability
to exclude others or to set prices,19 the hallmarks of market power (Katz and Rosen 1994).
Even at the trafficker level, market power seems elusive. The small share of the retail price accounted for by all activities up
to import is strong, but not conclusive, evidence of competition at this level.20 The continuing decline of prices over 30
years at all levels of the market suggests that if market power ever existed, it has now been dissipated. Thus there is no
level at which policymakers need be worried that tough enforcement will lead to price declines because a cartel is broken, a
matter raised more than 40 years ago by Tom Schelling in his classic paper on organized crime (Schelling 1967). The
explanation for the lack of market power may also be contained in Schellings paper. Perhaps the Mafia was collecting rents
on behalf of corrupt police departments that had exclusive jurisdiction and little external scrutiny; those departments are
less systemically corrupt and face substantial oversight from federal investigative agencies.
This conjecture may generalize across products and countries. It may well be that, without central and effective corrupt
government involvement, drug markets are likely (p. 376) to be fragmented and competitive. The few instances in which
there are indications of market power, as in Tajikistan and perhaps Mexico prior to 2000, it is the involvement of thoroughly
corrupt governments that is critical. That may also be the circumstance in which drug trafficking is no longer a specialized
activity but becomes an element of organized crime.

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Notes:
(1) . School of Public Policy and Department of Criminology, University of Maryland; IZA and RAND. Doug Weiss provided
helpful research assistance.
(2) . Note that there are no serious global estimates for any other illegal market. Nonetheless, the statement is not a
contentious one.
(3) . For the United States, see e.g., Levitt and Venkatesh 2000 reporting on Chicago in the 1990s and Reuter, MacCoun, and
Murphy 1990 reporting on Washington, DC, in 1988. For Norway, Bretteville-Jensen and Bion 2004, a study of heroin dealers
in Oslo, also shows very low earnings per dealer.
(4) . There appear to be no comprehensive reviews of the drug retailing literature for the United States or for Europe.
Important studies in the United States include: Jacobs 1999; Levitt and Venkatesh 2000; and Wendel and Curtis 2000. For
the United Kingdom, McSweeney, Turnbull, and Hough 2008 provides a review.
(5) . Gamella and Rodrigos (2008) description of the smuggling sector of the Moroccan hash industry provides a rare light
on this sector. Raisdana and Nakhjavani (2002) describe heroin distribution in Iran.
(6) . For example, much of Afghanistans heroin transits through Iran and Turkey and then is sold by the Turkish exporters in
the Balkans for smuggling to a western European destination. For a detailed description of the international heroin market,
see Paoli, Greenfield, and Reuter, 2009, chapter 3.
(7) . Kilmer and Pacula 2009 produce estimates for a number of countries that suggest that the earlier UNODC figures may
have been as much as three times too high.
(8) . The percentage varies by drug and route. For example, Kilmer and Reuter (2009) estimate that the value added
between farm-gate and import price is about 15 percent of the retail price of cocaine in the United States compared to 6
percent for heroin in the United Kingdom.
(9) . These are very approximate statements. Since drugs are seized at various points along the chain, a greater volume of
cocaine is sold at export than at retail. However, most seizures occur very early in the system when each kilogram has a
low replacement cost; thus, an adjustment for this would only slightly affect the cross-levels distribution.
(10) . This claim of PRI involvement in cartel agreements is a staple of the literature. I have been unable to find any Englishlanguage documentation of direct evidence for it.
(11) . These are small boats capable of carrying as much as 10 tons of cocaine with a very low profile that makes them hard
to pick up on radar; the cocaine can be disposed of easily by opening the hatches. For a sample incident report see
http://colombiareports.com/colombia-news/news/14692-colombian-forces-seize-narco-semi-submersible.html.
(12) . Paoli, Greenfield, and Reuter 2009 reports a kilogram price of $15,000 to $30,000. The above calculation assumes that
shipments are 80 percent pure, which may be high.
(13) . It is useful to note once again that there is a dearth of studies of the operation of retail markets in major consuming
countries that are poor, such as Iran, Pakistan, and Thailand.
(14) . These are time specific statements. At the time of the Knapp Commission inquiry into the New York Police Department
in the early 1970s, systemic protection of heroin dealers was clearly well established (New York Knapp Commission 1973). A
successor commission in the early 1990s found much less systemic corruption (Mollen et al. 1994). More recently, in the
early 1990s, massive systemic corruption was found in drug enforcement in the New South Wales Police Department in
Australia (Royal Commission into the NSW Police Service 1997).

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Drug Markets and Organized Crime


(15) . There is an ambiguity as to whether this total was for a single organization or a confederation associated with Miguel
Rodriguez-Orejuela, a principal figure in the Cali Cartel.
(16) . This appeared not to be so much compensation for longer time as for the number of potential police encounters.
(17) . This vague statement is all that can be gleaned from either Fuentes 1998 or Natarajan 2000.
(18) . It is not straightforward to calculate seizures as a share of total production because cocaine is often diluted close to
the source and no nation regularly reports the purity of seizures.
(19) . The best evidence is simply the ease with which new sellers enter and the speed with which they depart. There may
be rents for various capacities but certainly no power to exclude.
(20) . If demand is inelastic with respect to price, then a seller with market power can increase revenues and decrease costs
by cutting production, until reaching a level at which the demand is elastic. Though the demand for cocaine and heroin may
have elasticity greater than one with respect to final price at current levels, it is very likely that that elasticity is less than one
with respect to high-level prices, though there are extreme models of price mark-up from import to trafficking that would yield
a different result (see Caulkins 1990).
Peter Reuter
Peter Reuter is Professor in the School of Public Policy and the Department of Criminology at the University of Maryland, as well as
a Senior Economist at the RAND Corporation. His research interests are primarily in drug policy and money laundering control.

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